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UNITED STATES EX REL. GREENWALD-SUPON, INC. v. GRA

May 31, 1977.

UNITED STATES of America, for the Use of GREENWALD-SUPON, INC., Plaintiff,
v.
GRAMERCY CONTRACTORS, INC., and Fidelity & Deposit Company of Maryland, Defendants.



The opinion of the court was delivered by: COOPER

MEMORANDUM AND ORDER

IRVING BEN COOPER, District Judge.

 Defendant Gramercy Contractors has moved for judgment dismissing the complaint pursuant to Rules 12 and 56, Federal Rules of Civil Procedure in that the complaint fails to state a claim upon which relief can be granted, and in that the statutory prerequisites of the Miller Act, Title 40 U.S.C. § 270b have not been satisfied. For the reasons set forth below, we find that plaintiff's complaint alleges a cause of action provable under the Miller Act and that proper notice pursuant to that statute was given.

 This non-jury action was brought under the Miller Act for the recovery of $6,620.33 plus interest upon a payment bond for the balance due for services performed in connection with a construction and renovation job at the United States Military Academy, West Point, New York. On February 1, 1977, the parties appeared before us to commence the trial to the Court. It was agreed, however, that a trial would be unnecessary if we resolved that the statutory prerequisites of the Miller Act, i.e., notice and statute of limitations, were not satisfied. In that case, judgment would go to the defendant and the complaint would be dismissed. At that time the parties orally argued this issue; subsequently, written memoranda were submitted.

 We have carefully analyzed the memoranda, as well as the relevant statutory and case authority on the Miller Act. Additionally, we have examined the various exhibits, which consist of correspondence among the parties and others; we conclude that plaintiff's position prevails. Accordingly, trial on the substance of plaintiff's claim will commence on a date to be fixed.

 I

 The facts of this case are relatively simple. Defendant Gramercy Contractors entered into a contract with the United States Government on March 10, 1972 for the renovation of two buildings, Thayer and Bartlett Halls, on the West Point campus; contract price, $927,764. Pursuant to statute, defendant Gramercy secured two bonds from defendant Fidelity & Deposit Co. of Maryland (Fidelity) - a payment bond in the amount of $463,882 and a performance bond in the amount of $927,764. Gramercy then subcontracted the air-conditioning phase of the project to Bernard H. Steinke, a New Jersey corporation which was subsequently adjudicated a bankrupt and is not a party to this action.

 Plaintiff, in effect a subcontractor of the subcontractor Steinke, provided labor and materials and now contends that it completely performed its contractual obligations, for which it was entitled to $65,197.66; it was paid $58,224, leaving a net balance of $6,620.33, plus interest. During the course of the project, plaintiff encountered difficulty in collecting payment from Steinke. Accordingly, it secured a written statement from defendant Gramercy dated December 22, 1972, in which Gramercy agreed that final payment would not be made to Steinke without a release from plaintiff attesting to its receipt of full payment due from Steinke. Plaintiff maintains that it would not have continued on the job without the letter of assurance from defendant.

 Thereafter, the entire West Point project was completed, and defendant collected the full contract price from the United States Government. However, defendant did not pay plaintiff the balance of $6,620.33 owed plaintiff by Steinke. Instead, plaintiff claims that defendant applied the monies as a set-off to obligations of Steinke on other jobs it had performed for defendant, which, plaintiff contends, contravenes the agreement embodied in the letter of December 22, 1972. Defendant contends that the action was not commenced within the time limits prescribed by statute, and that in any event notice of claim was untimely. We now address ourselves to those issues.

 The Miller Act, 40 U.S.C. § 270b provides in pertinent part:

 (a) Every person who has furnished labor or material in the prosecution of the work... and who has not been paid in full therefor before the expiration of a period of ninety days after the day on which the last of the labor was done or performed by him... shall have the right to sue on such payment bond for the amount, or the balance thereof, unpaid...: Provided, however, that any person having direct contractual relationship with a subcontractor but no contractual relationship express or implied with the contractor... shall have a right of action... upon giving written notice to said contractor within ninety days from the date on which such person did or performed the last of the labor... for which such claim is made, stating with substantial accuracy the amount claimed and the name of the party to whom the material was furnished... or for whom the labor was done or performed. Such notice shall be served by... registered mail....

 (b) Every suit instituted under this section shall be brought in the name of the United States for the use of the person suing... but no suit shall be commenced after the expiration of one year after the day on which the last of the labor was performed....

 We hold that no notice was required pursuant to section 270b since the contractor entered into a contractual relationship, express or implied, with plaintiff. See 40 U.S.C. § 270b; Fidelity and Deposit Company of Maryland v. Harris, 360 F.2d 402 (9th Cir. 1966); U.S.A. ex rel. Hargis v. Maryland Casualty Co., 64 F. Supp. 522 (S.D.Cal. 1946); U.S.A. ex rel. Noland Co. v. Wood, 99 F.2d 80 (4th Cir. 1938). We hold further that, assuming arguendo that no contractual relationship existed here, we would still be constrained to deny defendant's motion for judgment dismissing the complaint: the papers presently before us suggest that adequate notice of claim was given by plaintiff (pursuant to 270b) within the statutory period of 90 days from April 19, 1973, the date plaintiff claims work was last performed on the West Point project. Finally, on the issue of the statute of limitations, it is clear that if plaintiff can prove work was done at West Point by it on April 19, 1973, then the action was timely commenced since the parties agree that the suit was filed March 27, 1974.

 II

 The Miller Act provides that only persons having "no contractual relationship express or implied with the contractor" must give notice of claim within ninety days of the last performed work. 40 U.S.C.§ 270b(a). In requiring written notice of claim to the contractor within ninety days, "the statute seeks to protect the contractor by making it possible for him to withhold moneys due to the subcontractor, in order to satisfy claims asserted by third persons." U.S.A. ex rel. Hargis v. Maryland Casualty Co., supra; see also, McWaters and Bartlett v. U.S.A. ex rel. Wilson, 272 F.2d 291, 294 (10th Cir. 1959); U.S.A. ex rel. Burack v. Sovereign Construction Co., 338 F. Supp. 657 (S.D.N.Y.1972).

 This rule has a laudatory purpose because "once ninety days have elapsed without such notice, the contractor ought to be free to pay the subcontractor for his work without risk of liability to the supplier. A less strict interpretation of the notice proviso 'would lead either to double payments or to interminable delay in settlements between contractors and subcontractors to guard against these, - in either case with attendant prejudice to all concerned.'" U.S.A. ex rel. Burack v. Sovereign Construction Co., supra, citing U.S.A. ex rel. J. A. Edwards v. Thompson Construction Corp., 273 F.2d 873, 875-76 (2d Cir. 1959), cert. denied, 362 U.S. 951, 80 S. Ct. 864, 4 L. Ed. 2d 869 (1960). These factual concerns are not present here; throughout the construction period, defendant knew of plaintiff's work on the project pursuant to its contract with Steinke, defendant's subcontractor. Moreover, defendant knew in specific detail of plaintiff's problems in recovering payments for work already done for Steinke at West Point. Indeed, defendant agreed during this period not to release contract monies to Steinke until plaintiff had been paid. This agreement, while not an express contractual relationship between plaintiff and defendant must be viewed as creating an implied relationship whereby defendant specifically stated: "We agree that final payment will not be made to Steinke without a release from Greenwald-Supon attested [sic] to their ...


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